Amicus Curiae Brief — Enernoc, Inc. v. Elec. Power Supply Ass'n, 135 S. Ct. 2049 (2015) (No. 14-841)

“a

SEP - 8 2015

Nos. 14-840 and 14-841 tee

IN THE |

Supreme Court of the United States

FEDERAL ENERGY REGULATORY COMMISSION,

Petitioner,

v.

ELECTRIC POWER SUPPLY ASSOCIATION, et ai.,

Respondents.

ENERNOC, INC., et ai.,

Petitioners,

Vv.

ELECTRIC POWER SUPPLY ASSOCIATION, et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF OF SOUTHERN COMPANY SERVICES,

INC. AS AMICUS CURIAE

SUPPORTING RESPONDENTS

ANDREW W. TUNNELL

Counsel of Record

BALCH & BINGHAM LLP

1901 Sixth Avenue North

Suite 1500

Birmingham, Alabama 35203

(205) 226-3429

atunnell@balch.com

Counsel for Amicus Curiae

September 8, 2015

ee a ann te a are a

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES. ..................sccscssseseees

INTERESTS OF AMICUS CURIAE ..................

INTRODUCTION AND SUMMARY OF

I. Demand Response is Being Effectively

Integrated into Markets without FERC

TREES ean Meee ee Dae noe

Il. Demand Response Programs Work

Well Under the Federal Power Act’s

Reservation of Authority Over Retail

Rates to the States - FERC Need Not

Overrule Congress’s Design ....................

A. A State-Specific Approach Has Not

Resulted in the “Balkanization” of

Demand Response ...................-.-se0++++-

B. Retail Customers have Real-Time

Pricing Options without FERC

a A EA Be cree

C. Southern Companies’ Demand

Response Programs are Integrated

over Southern Companies’ Multi-

State Footprint .........c.ccccccccsccsescseseeoees

D. A State-by-State Approach is Not

“Balkanization” but the Federalism

Codified in the Federal Power Act .....

12

12

15

19

‘i

TABLE OF CONTENTS—Continued

Page

Ill. Demand Response Programs, Whether

Regulated by FERC Or the States,

Provide Environmental, Reliability, and

ITI" sicicissincensicnineniceilientinichinpicieniasiatinsions 22

EET ae ee 25

TABLE OF AUTHORITIES

CASES Page(s)

Conn. Power & Light Co. v. FPC, 324 U.S.

EE Ea 15

Elec. Power Supply Ass’n v. FERC, 753 F.3d

216 (D.C. Cir. 2014), cert. granted, 83

U.S.L.W. 3835 (U.S. May 4, 2015) (No.

14-840) & consolidated sub nom.

EnerNOC, Inc. v. Elec. Power Supply

Ass'n, 83 U.S.L.W. 3835 (U.S. May 4,

I TEI icinnntditiesinaniieminietingnnnineeses 2,6

New State Ice Co. v. Liebmann, 285 US.

nil ciated Ril mibiaicitbiccntenimnats 21

STATUTES

I I i cisteicntsnaiaichie 2

ea 21

I ee 9

OTHER AUTHORITIES

FERC Staff Report, Assessment of Demand

Response & Advanced Metering (2014),

available at: https://www.ferc.gov/legal/

staff-reports/2014/demand-response.pdf.. 3, 8, 9

FERC Staff Report, Assessment of Demand

Response and Advanced Metering (Aug.

een 16

NERC Report, 2014 Long-Term Reliability

Assessment, available at: http://www.

nerc.com/pa/RAPA/ra/Reliability%20Ass

essments®20DL/2014LTRA_ERATTA.

iv

TABLE OF AUTHORITIES—Continued

Page(s)

NERC Report, 2015 Summer Reliability

Assessment, available at: http://www.

nerc.com/pa/RAPA/ra/Reliability%20Ass

INTERESTS OF AMICUS CURIAE'

Southern Company Services, Inc. (“SCS”) is the

centralized system service company providing

specialized services to The Southern Company and its

subsidiary companies, including Alabama Power

Company, Georgia Power Company, Gulf Power

Company and Mississippi Power Company (collec-

tively, the “Retail Operating Companies”). As a result,

SCS acts as agent for the Retail Operating Companies

in proceedings before state and federal agencies and

courts. The Retail Operating Companies serve over

4.5 million retail customers in the service territory

comprised of the States of Alabama, Georgia, the

northwestern portion of Florida and southeastern

Mississippi and have a total system generating

capacity of 45,000 MW (collectively, the Retail

Operating Companies and SCS are referred to herein

as “Southern Companies”).

This case is significant to Southern Companies

because demand response has been an important part

of their system operations for over twenty (20) years.

Their ability to tailor demand response programs to

the unique needs of each State has allowed Southern

Companies to develop a portfolio of products and

programs that currently have the potential to reduce

peak demand during times of system constraint by

over 3,000 MW. Southern Companies’ demand’

response programs also have allowed them to avoid

the construction of over 2,000 MW of new generating

' All parties have consented to the filing of this brief and copies

of their consent letters have been filed with the Clerk. Pursuant

to Rule 37.6, counsel certifies that this brief was not authored in

whole or in part by counsel for any party, and that no person other

than amicus or its counsel made a monetary contribution to its

preparation or submission.

2

capacity and have resulted in significant operational

efficiencies and cost savings to their customers.

While Southern Companies are not in a region

subject to Order No. 745, arguments made in this

proceeding that the integration of demand response

into wholesale markets pursuan. to this FERC rule is

superior to that provided under state regulation are

not supported by the evidence. Moreover, if Order No.

745 is allowed to stand, it would provide the precedent

for the erosion of the authority reserved to the States

by the Federal Power Act,? which in turn could disrupt

the effective demand response programs (and other

state-regulated programs) that Southern Companies

rely upon to render safe, economic, and reliable

electric services to their retail customers.°

INTRODUCTION AND

SUMMARY OF ARGUMENT

On hot summer afternoons and cold, polar vortex

mornings, electric utilities across the Southeast

rely upon demand response to substantially reduce

demand for electricity to ensure the safe and reliable

operation of the electric system. In such regions, where

? 16 U.S.C. § 824, et seq.

3 See Elec. Power Supply Ass’n v. FERC, 753 F.3d 216, 222

(D.C. Cir. 2014), cert. granted, 83 U.S.L.W. 3835 (U.S. May 4,

2015) (No. 14-840) & consolidated sub nom. EnerNOC, Inc. v.

Elec. Power Supply Ass'n, 83 U.S.L.W. 3835 (U.S. May 4, 2015)

(No. 14-841) (“EPSA”) (“[I}f FERC’s arguments are followed to

affect jurisdictional rates in the same way as the type of demand

response at issue in FERC’s rule here, and FERC’s authority

regarding demand response would be almost limitless.... [Nlothing

would stop FERC from expanding this regulation and encroach-

ing further on state authority in the future.”).

3

FERC has not exercised the authority it asserts in

Order No. 745, demand response has been and contin-

ues to be effectively integrated into grid operations

under the exclusive rate authority of the States. These

States have established demand response programs

that support the reliable operation of the electric

system while saving customers money.

Claims that the demand response programs in those

States are inherently inferior to that provided under

FERC’s regulation of wholesale markets pursuant to

Order No. 745 are not supported by the facts. Data

provided by the U.S. Electric Information Administra-

tion (“EIA”) for 2013 for large utilities shows that

while the national average for the potential reduction

of peak demand afforded by demand response was

2.6%, Southern Companies’ potential peak demand

reduction was 6.2%. Likewise, FERC’s 2014 Assess-

ment of Demand Response & Advanced Metering

shows that the region of the country having the

highest amount of potential peak reduction provided

by demand response was the SERC Reliability Cor-

poration (“SERC”) — a region where demand response

compensation was almost exclusively regulated by

the States when that assessment was prepared.

In addition, the most recent summer and long-term

reliability assessments prepared by the North

American Electric Reliability Corporation (“NERC”)

show that the integration of demand responses in

regions where it is not regulated by FERC compares

favorably to regions that are subject to Order No. 745.

In Southern Companies’ experience, state-specific

approaches to integrating demand response programs

have not resulted in the “balkanization” of demand

response but, instead, have allowed more tailored

approaches so as to attract greater participation by

4

customers. Indeed, state-specific approaches are not a

“balkanization” but the federalism adopted in the

Federal Power Act’s reservation of certain authorities

to the States. Concerns that a state-regulatory

approach forecloses the regional integration of demand

response also are not borne-out by Southern Com-

panies’ experience over their collective, multi-state

footprint. Among other things, demand response is

incorporated into the joint electric pool operated by

Southern Companies.

Arguments that FERC regulation of demand re-

sponse compensation at wholesale is necessary to

address failures in state-regulated retail rate designs

are undermined by the fact that state-regulated

demand response programs have enjoyed, and con-

tinue to enjoy, great success in those markets

unencumbered by FERC rules. Criticisms that state-

regulated programs do not generally provide for real-

time, dynamic pricing is countered not only by the

many state-regulated programs that provide those

products, but also by the fact that Order No. 745 itself

does not constitute a full dynamic pricing program.

This is because Order No. 745’s incentive payments

are not available all hours but only when the pay-

ments pass the “net benefits” test. Furthermore,

Order No. 745 incentive rate payments constitute only

one aspect of the price signal that the end-use

customer has to consider when deciding whether or

not to consume during a particular period. Specifi-

cally, in addition to the FERC incentive payment that

the end-use customer would receive, an informed

customer also would need to consider the retail

charges that would otherwise apply.

Lastly, while FERC and its supporters correctly

identify the reliability, policy and environmental

5

benefits provided by demand response, those same

types of benefits are afforded through state-regulated

demand response programs. This same result should

come as no surprise sirice both FERC’s and the States’

programs are regulating the same activity — the

decision by a retail customer whether to forego electric

consumption during a particular period.

ARGUMENT

I. Demand Response is Being Effectively

Integrated into Markets without FERC

Intervention.

FERC indicates, and amici in support of FERC

argue, that FERC regulation of demand response rates

through direct payments to retail ratepayers from

wholesale market operators is a superior approach

than relying upon state-regulated demand response

programs.‘ Moreover, they argue that demand

response is inherently part of the “wholesale market”

because demand response “lower[s] wholesale rates”

and, in any case, the States are incapable of effectively

regulating it.®

As an initial matter, arguments that demand

response is inherently part of the wholesale market

* See FERC Br. at 28-29, 31, 43; Electricity Consumers and DR

Providers Br. at 8-18; Guarini Br. at 10-13; Private Petitioners

Br. at 8-9, 39-40.

5 FERC Br. at 33; see also Private Petitioners Br. at 38-40

(arguing that FERC regulation of demand response is necessary

to ensure just and reasonable rates).

® See, e.g., Guarini Br. at 11 n.5 (“Moreover, even if dynamic

pricing were [sic] widely adopted, wholesale demand response

programs may still confer distinct reliability benefits to wholesale

market operators.”).

6

fail to take into account that demand response under

both FERC’s Order No. 745 and state-administered

programs regulate the same activity — the decision by

a retail customer whether to forego the consumption

of electricity during a particular period. FERC’s

definition of “demand response” makes clear that the

demand response that Order No. 745 regulates in-

volves the consumption of electricity, which inherently

is a retail activity:

Demand response means a reduction in the

consumption of electric energy by customers

from their expected consumption in response

to an increase in the price of electric energy

or to incentive payments designed to induce

lower consumption of electric energy.’

Moreover, arguments by FERC and its supporters

that Order No. 745 is inherently a superior approach

to the integration of demand response to that provided

’ 18 C.F.R. § 35.28(bX4) (relevant emphases added). In fact,

before the D.C. Circuit, FERC acknowledged that “wholesale

demand response’ is a fiction of its own construction.” EPSA, 753

F.2d at 221 (emphasis in original) (quoting Oral Arg. Tape, No.

22-1486, at 27:31 (D.C. Cir. Sept. 23, 2013). Likewise, the briefs

of the other petitioners and amici supporting FERC on numerous

occasions reference how “wholesale” demand response is simply

a decision and action by an end-use customer. See, e.g., Private

Petitioners Br. at 44 (“Companies like petitioners that aggregate

and manage demand response resources build complex network

operation centers that allow demand response to be bid into

wholesale energy markets and ensure that end-user customers

curtail demand when called upon to do so....”) (emphasis

added); see also, e.g., California Br. at 1 (“Both federal statutes

and statutes of many States ... supporting allowing retail

customers to participate in wholesale energy markets....”)

(emphasis added); id. at 11 (“cooperation between State and

FERC allow retail bidding of demand response in wholesale

markets....”).

7

under state regulation are incorrect as they ignore

the robust integration of such “reduction in the

consumption of electricity” that has occurred in

regions not subject to FERC Order No. 745. For

example, in Southern Companies’ expansive service

territory — covering more than 120,000 square miles in

significant portions of four Southeastern states

(Alabama, Georgia, Florida, and Mississippi) with

over four million retail customers® — demand response

has been and continues to be reliably, economically,

and effectively integrated into markets and grid

operations.

Data compiled by the EIA, through its Form EIA-

861 surveys, demonstrates that FERC regulation of

demand response compensation rates is not necessary

for the expansion and successful integration of

demand response into grid planning and operations.’®

In concert with their state regulators, Southern

Companies have developed a robust set of demand

response programs that significantly exceed the

national average for the potential reduction of retail

consumption that is achievable by those programs

during peak conditions. In 2013, the national average

for the potential reduction of peak demand afforded

by demand response programs for large utilities

was 2.6%.'° By comparison, Southern Companies’

5 http//www.southerncompany.com/about-us/our-

business/home.cshtml.

® The Form EIA-861 data is available at: http://www.eia.gov/

electricity/data/eia86 1/.

10 See http://Awww.southerncompany.com/what-doing/corporate-

‘bility/ : tion/championi my

cshtml. Nearly two-thirds of the nation’s electric load is served

by utilities subject to Order No. 745. See FERC Br. at 6.

8

potential reduction during summer peak usage was

6.2% — more than double the national average.'!

2013 EIA-861 Potential Peak Reductions

from Demand Response

(Large Utilities - 2,000 MW and above)

Summer | Potential | Percentage

Peak Peak Savings

(MW) Savings

from

Demand

Response

(MW)

Southern 30,824 | 1,918 6.2%

Companies

US Average 7,887 202 2.6%

FERC’s own demand response reports also show the

successful integration of demand response in regions

not subject to Order No. 745. The most recent of

these reports is FERC’s 2014 Assessment of Demand

Response & Advanced Metering.** FERC’s analysis

'! See http//www.southerncompany.com/what-doing/corporate-

responsibility/energy-innovation/championing-energy-efficiency.

cshtml. As shown in the following table, this 6.2% amount of

potential peak savings for Southern Companies is based upon

EIA data that shows 1,918 MW of potential peak savings having

been available for Southern Companies in 2013. While signifi-

cant, Southern Companies’ internal data shows an even higher

amount, 2,974 MW of potential peak savings, was actually

available to Southern Companies in 2013. Utilizing that internal

data brings Southern Companies’ actual potential peak savings

from demand response in 2013 to 9.64%.

12 The report is available at: https://www.ferc.gov/legal/staff-

reports/2014/demand-response.pdf (“2014 FERC DR Report”).

This report is organized by providing assessments of the different

9

shows that SERC - the region for the Southeast

encompassing, inter alia, Southern Companies’ service

territories and where demand response programs

were almost exclusively regulated by the States when

the data for that report was compiled — had the highest

amount of potential peak reduction of all of the NERC

regions.'* In addition, the Florida Reliability Coor-

dinating Council (“FRCC”) — an area in which demand

response is also regulated by the State — is identified

as one of only three regions where more than half of

the meters are smart meters, a key new technology

that facilitates the deployment of certain demand

response programs by communicating real-time meter

readings to system operators."

The most recent reliability assessments performed

by NERC” further reinforce that State authority over

demand response is highly effective. The following

table draws data from the 2015 Summer Assessment

to identify some regions where FERC regulates

demand response and some regions where it does not,

showing: 1) the amount of demand response identified

as available in that region for the summer of 2015;

regions that report to NERC. NERC is the Electric Reliability

Organization (“ERO”) for purposes of Federal Power Act Section

215. See 16 U.S.C. § 8240(aX2).

13 See 2014 FERC DR Report at 9-10 (Tables 3-1 and 3-2).

Id. at 4 (Table 2-2); see also Joint States Br. at 37-38

(discussing the role smart meters play in facilitating end-use

customers’ provision of demand response).

16 See 2015 Summer Reliability Assessment (“2015 Summer

Assessment”), available at: http:/Avww.nerc.com/pa/RAPA/ra/Re

liability%20Assessments®20DL/2015_Summer_Reliability_Asse

ssment.pdf. The assessments provide, among other things, data

regarding the total amount of demand response available in each

region.

10

2) the total demand identified within that region for

electricity for the summer of 2015; and 3) a ratio of the

percentage of that total demand response relative to

that total internal demand:

Total

Demand Total Ratio of

Response | Internal | Demand

Available | Demand | Response

(MW) (MW) to Load

FERC-

Regulated

| Region

MISO** 5,031 127,319 3.95%

PJM" 7,780 155,544 | 5%

SPP" 1,284 50,529 | 2.54%

State-

Regulated

Region

FRCC”® 3,101 46,452 | 6.68%

SERC20 4,718 131,395 | 3.6%

As shown above, regions where FERC does not

regulate demand response compensation compare

favorably to regions where FERC does.

16 See 2015 Summer Assessment at 21.

17 Td. at 36.

18 Td. at 39.

% Td. at 19.

* Jd. at 37. These numbers for SERC are the summation of

the NERC data provided for al] three of the SERC sub-regions.

11

Similar data is provided by NERC’s most recently

issued long-term reliability sment.** The 2014

LTRA provides projections for all years from 2015-

2024. The following compares the demand response

and load data similar to that provided in the table

above but for the last year of the LTRA’s projections —

2024:

2024 2024 Ratio of

Total Total Demand

Demand | Juternal | Response

Response | Demand |_to Load

Available | (MW)

(MW)

FERC-

Regulated

Region

MISO” 4,851 138,433 | 3.5%

PJM*™ 12,402 173,729 | 7.1%

SPP 1,327 56,991 | 2.3%

State-

Regulated

Region

CC™ 3,523 52,981 | 6.65%

SERC* 7,363 149,584 | 4.9%

#1 NERC’s 2014 Long-Term Reliability Assessment (“2014

LTRA”) available at: http//www.nerc.com/pa/RAPA/ra/Reliability

%20Assessments®20DL/2014LTRA_ERATTA pdf.

2 Td. at 38.

% Td. at 72.

* Td. at 82.

* Id. at 36.

8 Id. at 78-79. These numbers for SERC are the summation

of the NERC data provided for all three of the SERC sub-regions.

12

The foregoing data dispels the notion that demand

response can only be effectively integrated into grid

operations through FERC regulation of the compensa-

tion. Regions where demand response programs re-

main solely subject to regulatory oversight by the

States are doing an effective job integrating demand

response into their markets. In short, arguments and

indications that the integration of demand response in

wholesale markets through FERC regulation is

inherently superior to that in regions not subject to

Order No. 745 are not accurate.

Il. Demand Response Programs Work Well Under

the Federal Power Act’s Reservation of

Authority Over Retail Rates to the States -

FERC Need Not Overrule Congress’s Design.

A.A State-Specific Approach Has Not

Resulted in the “Balkanization” of

Demand Response

The Joint State Petitioners argue that if FERC is

not allowed to regulate demand response compen-

sation, then there would be “the possibility for a

balkanized market to develop, where [S]tates are

required to patch together individual rules for

participation of demand response resources at the

retail level....”"” The end result, they claim, is “[t]he

likelihood [] that huge portions of demand response

will simply disappear. ...””

Again, this theoretical claim is undermined by

actual experience. Southern Companies operate a

7” Joint States Br. at 31; see also Private Petitioners at 39-40.

® Joint States Br. at 32.

13

joint electric pool (dispatching generation and operat-

ing the Southern Companies’ transmission network as

a single system) that operates in four different States

subject to regulation by four separate state regulatory

commissions. The differences in the demand response

programs in those separate retail jurisdictions have

not been a hindrance to the incorporation of demand

response in Southern Companies’ footprint. To the

contrary, Southern Companies have developed

demand response programs in their different jurisdic-

tions that meet the unique customer characteristics

and requirements of each State’s regulatory frame-

work. These more tailored approaches (as compared

to the one-size-fits-all approach adopted in Order No.

745) generally encourage greater participation of

demand response by end-users.

For example, Alabama is characterized by a signifi-

cant concentration of large industrial customers that

has allowed Alabama Power Company (under the

regulatory oversight of the Alabama Public Service

Commission) to develop an interruptible load program

that pays customers for the ability to interrupt loads

for system needs (e.g., to address system peak or

reliability needs). This program benefits the partici-

pants of the program through direct payments and all

ratepayers, generally, by avoiding the construction of

generation capacity that would ultimately be

recovered through retail rates.

In Georgia, where there is a lower concentration of

industrial load, Georgia Power Company (under the

regulatory oversight of the Georgia Public Service

Commission) has developed a “Voltage Reduction”

program that allows end-use customers to lower the

voltage on certain electric equipment (i.e., electric

14

feeders) while maintaining reliability operating re-

quirements in times of system needs. This program,

therefore, results in lower electric consumption and

allows Georgia Power Company to avoid building

generation capacity to meet peak demand, thereby

putting downward pressure on the rates for all cus-

tomers. Georgia Power Company also has developed a

direct load control program under which residential

customers receive credits to their retail bills in return

for allowing Georgia Power Company to attach a

device to those customers’ air conditioning systems

that allows Georgia Power Company to reduce the air

conditioning units’ running time during periods of

peak demand.”

Furthermore, Southern Companies have flexibility

in designing these retail demand response programs

to further attract end-user participation. For

example, in the real-time pricing programs offered by

Georgia Power Company and discussed further

below,®° the following, simple alternatives are

provided: day-ahead and hour-ahead pricing options.

This ability to offer different, easy to understand

demand response pricing options allows customers to

select the best option for them based on their own

ability to manage or respond to dynamic price signals.

A top-down, one-size-fits-all approach does not allow

for this customization, thereby limiting the ability

of customers to participate in demand response

programs.

2% See http://www.georgiapower.com/residential/products-and-

programs/power-credit/.

% See infra at 16.

15

The costs and benefits of each of the above-described

programs are reviewed and approved by the governing

state regulatory authority. The end result of this

variety of programs has not been a diminished par-

ticipation of demand response in Southern Companies’

markets. To the contrary (as discussed above), they

have allowed Southern Companies to achieve robust

demand response participation, achieving a potential

peak savings from demand response of 6.2% that is

significantly higher than the national average for large

utilities of 2.6%.”

B. Retail Customers have Real-Time Pricing

Options without FERC Involvement

Those supporting FERC argue that FERC action

over the compensation for demand response in

wholesale markets is necessary because of apparent

regulatory failures by the States in their regulation of

retail markets. As framed by the Private Petitioners,

the basis for this criticism is that “[ujnlike wholesale

prices, retail prices, i.e., electricity prices charged to

consumers, are not generally permitted to fluctuate

hour-by-hour or even day-by-day. ...”*”

3! See supra at 7-8; see also id. at n. 11 (explaining that using

Southern Companies’ internal data increases Southern Com-

panies’ percentage to 9.64%).

52 See Private Petitioners Br. at 8-9; see also Guarini Br. at 10

(“[T)here are political obstacles to implementing retail dynamic

pricing — for example, very high prices during peak demand

periods threaten public backlash — and it has not been widely

adopted by state regulators.”); see also Conn. Power & Light Co.

v. FPC, 324 U.S. 515, 530 (1945) (identifying the infirmity with

the argument that FERC should be permitted to usurp state

regulatory authority over retail rates when states are “unable” to

accomplish FERC’s goals: Congress deliberately chose to leave

16

Again, this argument does not comport with actual

experience. As part of Southern Companies’ develop-

ment of demand response programs tailored to meet

the unique customer characteristics and regulatory

environments of their different jurisdictions, Southern

Companies have implemented numerous real-time

and price-sensitive retail rates. These programs pro-

vide participating customers® price signals to inform

their decision whether to consume or forego consump-

tion at any particular time. Georgia Power Company

was, in fact, one of the first utilities to develop a

real-time pricing program, which FERC noted was

“probably the most successful voluntary real-time

pricing program in the United States.”™™

Alabama Power Company offers more than 20 retail

rates and rate riders that incorporate demand

response.” First, there are rates and rate riders that

such decisions with the more politically responsive state authori-

ties even if “some degree of efficiency of [the] federal plan [was]

thereby sacrificed.”).

33 Southern Companies’ different State jurisdictions have not

mandated the universal usage of real-time pricing. Instead,

Southern Companies have adopted numerous real-time and price

sensitive programs in an effort to maximize the voluntary

subscription to these demand response programs by their end-use

customers.

“ FERC Assessment of Demand Response and Advanced

Metering, August 2006, Revised 2008 at 61; see also id. at 60-63,

available at: http:/Awww-ferc.gov/legal/staff-reporta/demand-

response.pdf.

% These and other Alabama Power Company retail rates are

available at: http://www.alabamapower.com/business/pricing-

rates/home.asp; see also http//www.alabamapower.com/busi

nesa/pricing-rates/rate-riders-adjustments.asp. As demonstrated

by a review of those rates, demand response is a core component

to numerous retail rate programs and resulting retail sales.

17

provide time-of-use pricing — lower rates during

periods of lower electricity demand to encourage

consumption during non-peak times. These programs

also impose higher rates during the peaks to encour-

age lower consumption when demand is high. Second,

there are real-time pricing programs where the cus-

tomer pays rates based upon Alabama Power

Company’s incremental cost of providing electric

service.

In Florida, Gulf Power Company has developed its

innovative Energy Select program.” This nationally

recognized energy conservation program provides

residential customers free programmable thermostats

that allow their central cooling and heating system,

electric water heater, and pool pump to automatically

respond to different electricity prices that change

depending upon the time of day, day of week, and

season. This is a very effective demand response

program that provides price signals to residential

customers to discourage consumption during periods

of peak electric demand.”

% See http//www.gulfpower.com/residential/earthcents/energy-

select/program-overview/what-is-it.cshtml.

*’ As demonstrated by the descriptions of Southern Compa-

nies’ demand response programs provided in this brief, those

state-regulated programs offer consumers both types of demand

response discussed in FERC’s definition of demand response

provided in its regulations. Specifically, Southern Companies’

customers incentives to reduce their consumption “in response to

an increase in the price of electric energy....” Compare 18 C.F.R.

§ 35.28(bX4). In addition, Southern Companies’ interruptible

programs provide participating retail customers “incentive

payments” to allow for the interruption of the provision of service

to them when deemed appropriate by Southern Companies in

their role as system operator. Compare id.

18

In addition, while Private Petitioners and the

Guarini Center criticize State retail rate programs for

not being more in the nature of real-time pricing,

it bears noting that the FERC-regulated demand

response program is not a full, real-time pricing

program. First, Order No. 745’s incentive payments

are not always available. As explained in FERC’s

brief, making the FERC demand response program

available all hours would actually result in an increase

in the cost of energy during some hov.rs — particularly

periods having low demand — due to the “billing

unit effect."* The billing unit effect refers to how “a

decrease in demand ‘may result in an increased cost

per unit ... associated with the decreased amount of

load paying the bill.”*’ Given this complication, unlike

a full dynamic pricing program where the rate that

the end-use customer bears fluctuates essentially all

hours to track the utility’ incremental costs, the

availability of the FERC incentive demand response

payments is limited to times that those payments pass

FERC’s “net benefits test.” Second, while a retail

dynamic pricing program generally results in the end-

use customer being provided a single price signal

(based upon the utility's incremental costs) upon

which the customer makes the determination whether

or not to consume electricity for a particular period of

time, Order No. 745’s demand response incentive

payments are only a part of the price signal that the

consumer receives. This is because the customer

should also consider the cost of the retail charges that

% FERC Br. at 50 (quoting Pet. App. 55a).

8 Id.

19

they would bear should they decide to consume and

not take the FERC incentive payments.“

C. Southern Companies’ Demand Response

are Integrated over Southern

Companies’ Multi-State Footprint

Amicus Guarini argues that a state-by-state demand

response approach will result in “[bjalkanizing the

market for demand response resources along state

lines” because “[a] State will not consider the benefits

that other States enjoy from its demand reductions,

because the State will receive no compensation for

reducing electricity prices in other States and will

have to bear the full costs of the demand reductions

that it undertakes.“* This concern is, again, not

borne-out by Southern Companies’ experience. Not

only do Southern Companies perform integrated

resource planning that coordinates long-term plan-

ning for both supply-side (e.g., electric generators)

and demand-side (e.g., demand response) options to

identify appropriate means to address system needs

over their multi-state footprint, but the operation of

Southern Companies’ joint electric pool also integrates

demand response over that collective footprint.

In particular, Southern Companies’ joint electric

pool is governed by their “Intercompany Interchange

“ Id. From Southern Companies’ twenty-plus-years’ experi-

ence in offering real-time pricing programs, Southern Companies

have found that customers can only make informed decisions

when they clearly understand the price they are paying.

Mechanisms that have after the fact true-ups, or a need to switch

between multiple options, tend to drive customers to options that

are simpler and more certain or to simply not participate in the

complicated program.

“! Guarini Br. at 12.

20

Contract” (“IIC”).“ Among other things, the IIC pro-

vides for “reserve sharing” among the Southern

Companies that recognizes that each of them may

have a temporary surplus or deficit of capacity in

any given month.“ In determining whether each of

the Southern Companies has a surplus or deficit of

capacity, the IIC explicitly recognizes the “Active

Demand Side Options” that each should be allowed

to recognize as reducing their total peak demand

requirements.“ In addition to incorporating demand

response into their reserve sharing calculations, the

IIC also provides for hourly energy transfers (“Inter-

change Energy”) between the Southern Companies

based upon the variable costs of the generating

resources that are considered to have supplied that

energy.” During any given hour, the actual utilization

of the above-described demand response programs

offered by Southern Companies that reduces electric

consumption inherently results in downward pressure

on such charges for hourly Interchange Energy. Thus,

it is entirely possible for demand response to be

effectively incorporated into multi-state grid opera-

tions without FERC setting the rates for demand

response compensation.

“ The currently effective IIC is available at: http//www.south

erncompany.com/about-us/our-business/energy-auction/pdfs/Inter

company%20Interchange%20Contract%20_5- 18-07. pdf.

* See id. at Section 7.1.

“ Id. at attached Allocation Methodology and Periodic Rate

Computation Manual, Section 4.2.8.

“ Id. at Section 8.1.

21

D.A State-by-State Approach is Not

“Balkanization” but the Federalism

Codified in the Federal Power Act

Characterizing state regulation of demand response

as a “balkanization” is also inappropriate because such

regulation is, in fact, the cooperative federalism

mandated by Congress in the Federal Power Act.

Section 201 of the Federal Power Act reserves specific

powers to the States to regulate retail sales,

generation, local distribution, etc.“ Congress, in

reserving those powers, obviously intended that the

States (which are, by design, more responsive to local

issues and needs than a federal agency) continue to

develop retail electricity programs that those States

consider to be appropriate for their respective citizens.

Rejecting complete uniformity, Congress chose to have

the States (and not FERC) regulate the relationship

between end-users and their electric service

provider.*’

“ See 16 U.S.C. § 824(bX1).

*’ “Tt is one of the happy incidents of the federal system that a

single courageous State may, if its citizens choose, serve as a

laboratory....” New State Ice Co. v. Liebmann, 285 U. S. 262, 311

(1932) (Brandeis, J., dissenting).

22

Ill. Demand Response Programs, Whether

Regulated By FERC or the States, Provide

Environmental, Reliability, and Policy

Benefits

FERC and virtually all other petitioners and amici

supporting FERC emphasize the many benefits of

demand response.“ The Private Petitioners note that

“liJn the ‘polar vortex’ of the 2014 winter, for example,

PJM deployed demand response to maintain system

reliability and to meet its highest ever winter peak

demand.” Southern Companies do not dispute that

demand response provides these benefits, but only

emphasize that those same types of benefits are

provided by state-regulated demand response pro-

grams. This should not be a surprise because demand

response, in either case, involves the same action by

an end-use customer to reduce its consumption of

electricity during a particular period.

For example, Southern Companies’ demand re-

sponse programs were likewise critical in maintaining

reliability and meeting system needs during the same

polar vortex of 2014. Specifically, on January 7, 2014,

Southern Companies called for their demand response

customers to curtail demand and, as a result, were

able to keep system demand during those extreme

weather conditions more than 1,400 MW below peak.”

“ E.g., Brief of Stanford Economics Professor Charles D.

Koldstad at 3-6; Guarini Br. at 3-13.

* Private Petitioners’ Br. at 39.

® Private Petitioners argue that a “critical problem” with

integrating demand in retail markets is that they “are generally

not considered firm resources, because they are not known to grid

operators or dispatchable.” Private Petitioners Br. at 40 (internal

quotations omitted). These assertions are contrary to Southern

23

Again this reduction was possible and accomplished

over a four-state region with a so-called “patchwork”

of state-regulated demand response programs."

Likewise, amicus Guarini cites specific “resource

efficiency” and “environmental benefits” from whole-

sale demand response. Southern Companies’ demand

response programs established under state regulation

afford the same type of benefits: Southern Companies’

demand response programs similarly reduce average

prices by limiting peaks in demand for electricity;™

Southern Companies’ demand response programs

limit price spikes by helping flatten demand for

power; Southern Companies’ demand response

programs provide an alternative resource to electricity

generators to keep the grid in balance; Southern

Companies’ experience. As demonstrated by the following exam-

ples already discussed in this brief, Southern Companies have

numerous demand response programs that are considered “firm

resources” as well as those that are “dispatchable”: during the

polar vortex, Southern Companies were able to rely upon their

demand response programs to curtail consumption; Alabama

Power Company’s above-discussed interruptible programs allow

the utility to dispatch demand response consistent with the terms

of those programs (see supra at 13); and Southern Companies’

reserve sharing calculations include firm, “demand-side options”

(see supra at 20).

5! See, e.g., Joint States Br. at 32; Electricity Consumers and

Demand Response Providers Br. at 10.

52 See supra at 13-20 (describing Southern Companies’

effective integration of demand response programs regulated by

four separate state regulatory authorities).

5 Guarini Br. at 5-9.

* Compare id. at 5.

5 Compare id. at 6.

5 Compare id. at 6-7.

24

Companies’ demand response programs provide envi-

ronmental benefits by avoiding the running of more

expensive, older power plants and thereby reducing

emissions; and as shown above by the polar vortex

example, Southern Companies’ demand response

programs fortify reliability.”

In short, in Southern Companies’ experience,

demand response regulated by state public service

commissions works well (and in accordance with

Congress’s design). Expanding FERC jurisdiction over

demand response compensation would endanger these

state-regulated programs by allowing FERC to second-

guess and potentially displace those retail programs.

And because virtually all state-regulated electricity

programs affect wholesale electric service, FERC’s

assertion of jurisdiction here, if allowed to stand,

would provide precedent for FERC to adjust other

State retail programs using the hook that retail

service “directly affects” wholesale rates. If FERC’s

jurisdictional assertion and arguments are accepted,

the Federal Power Act’s reservations of authorities to

the States will be significantly eroded and diminished.

5’ Compare id. at 8-9.

5 Compare id. at 7-8. Impo~t=ntly, the benefits shown by the

Grid Engineers in their brief of how demand response is used in

West Texas to integrate wind generation are effectuated in a

region not subject to Order No. 745. Rather, the State of Texas

exclusively regulates such programs. See Grid Engineers and

Experts Br. at 21-22.

25

CONCLUSION

For these reasons, and those stated by respondents,

Southern Companies urge the Court to affirm the

decision below.

Respectfully submitted,

ANDREW W. TUNNELL

Counsel of Record

BALCH & BINGHAM LLP

1901 Sixth Avenue North

Suite 1500

Birmingham, Alabama 35203

(205) 226-3429

atunnell@balch.com

Counsel for Amicus Curiae

September 8, 2015